What is arbitration?

Published on
5 min read

Put simply, arbitration is a private form of dispute resolution. It allows parties to refer their dispute to an independent neutral tribunal to resolve.

Arbitration is a creature of contract.  All parties must agree in writing to refer their dispute to arbitration (whether at the outset of entering into a contract or at a later date). 

Whilst it is often coupled together as a form of ‘alternative dispute resolution’, arbitration is different.  The Awards issued by tribunals are binding on the parties and are not subject to appeal save in limited circumstances. Conversely, mediators are unable to make binding determinations unless the parties agree otherwise. 

What are the benefits of arbitration over court litigation

Whilst some seek to argue that arbitration has certain limitations, most will admit that it provides many benefits which court procedures cannot offer. 

Enforcement

  • New York Convention allows for enforcement across the globe - Under the New York Convention, contracting States are required to recognise and enforce arbitration agreements and Awards save or limited exceptions. What that means in practice is that the courts of contracting States are required to:
    • require any party to submit their dispute to arbitration if they have agreed to refer their disputes to arbitration; and
    • recognise any arbitration Award issued as binding and enforce them under their local procedural law.
  • More than 160 Contracting States have signed up to the New York Convention.Whilst the UK has some similar arrangements in respect of its court judgments, they are not on the scale which the New York Convention provides for.
  • Brexit - Post Brexit, the Brussels Recast Regulation will cease to apply in the UK. The position regarding how UK judgments will be enforced throughout the EU and vice versa remains uncertain and will depend on what arrangements the UK agrees with the EU once the transitional arrangements come to an end (such as whether the UK will rely on the 2005 Hague Choice of Courts Convention and 2019 Hague Judgement Convention (if acceded to)). No such uncertainty exists for the enforcement of arbitration Awards under the New York Convention

Confidentiality

One of the major advantages of arbitration is that proceedings are conducted in private and are kept confidential. That means that the subject matter and the contents of a dispute should be kept out of the public domain. Court litigation by contrast is almost always conducted in public in order to allow for due process and transparency of justice. Whilst the English Arbitration Act 1996 does not include a provision that parties to arbitrations are required to keep the existence of the arbitration confidential, English common law does dictate that it is an implied term of every arbitration agreement that the existence of the arbitration and the documents produced during the proceedings are to be kept confidential. That can only be fettered in limited circumstances. The privacy of arbitration can be important to parties in particular where parties do not wish their sensitive, commercial and/or proprietary information to be disclosed to the public.  

Skilled decision makers

Another major advantage of arbitration in comparison to litigation is the ability to select the tribunal who will determine the case.  Parties can agree which independent experts will review and determine the key issues in dispute with the benefit of their existing appreciation of both the legal and commercial considerations at play, often gained over a long career in the relevant field.

Speed and flexibility

  • Arbitration is a party led process and allows for parties to agree how their dispute should proceed.  This can allow parties to try and reduce the costs they face in litigating a matter by agreeing their dispute should be resolved under a streamlined expedited process (such as at the outset when entering into a contract). 
  • Certain arbitration institutional rules already provide that disputes of certain values should be conducted under expedited procedures in any event.  For example, the ICC Rules provide that arbitrations commenced under their rules with quantum values less than USD 2m should be concluded within six months of the first case management hearing taking place (unless the parties agree otherwise).
  • Arbitration regimes are also increasingly allowing for expedited and summary procedures in order to ensure unmeritorious claims and defence can be summarily disposed of.  For example, the SIAC and SCC Rules now provide for summary disposal of claims and defence which are manifestly without legal merit.  Statistics released by SIAC state that 62.5% of applications for summary disposal of claims succeeded in 2019. 

Technology

  • Arbitration has always been at the forefront of employing cutting edge technology to make the procedure more efficient and cost effective.  For years it has not been uncommon for arbitration hearings to be conducted by video conferencing software where the law of the seat allows.  That ensures that the cost, time and environmental impact of people having to travel to hearings can be limited and also helps minimise delays of when everyone can convene for a hearing.  
  • By way of example, the International Arbitration Centre in London provides a service that allows for hearings to be conducted by secure video-link which provides for private breakout rooms for parties and tribunals respectively.  It also provides a decluttered screen focussed on the tribunal, advocates and witnesses only. 
  • Statistics from a survey conducted by Queen Mary University in 2018 found that 66% of arbitration users they surveyed had seen an increase in virtual hearing rooms being used during the arbitration.   ICSID meanwhile reported that about 60% of the 200 hearings and sessions organised in 2019 were conducted by video conference.
  • With UK courts unfortunately announcing in March 2020 that they were limiting the number of hearings being heard during the Coronavirus outbreak, there is likely to be a significant backlog of cases to be listed once the courts are fully functioning again.  Because parties are free to select the tribunals which they wish to appoint, no such issues should occur in arbitration. That means that even if parties would rather have a final hearing in person, there is no need for case management or interlocutory hearings to be delayed if they could be determined by a video hearing.  That will ensure that there are no unnecessary delays to the arbitration process.  Accordingly, arbitration is already being seen by participants in the market as an attractive alternative to court litigation for those that do not wish the resolution of their disputes to be delayed.
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